Utlizing Short Sales in Pre-Foreclosure Investing

The longer I work in the foreclosure market the more I am astounded by the degree of success that the mortgage industry had in removing most of the equity form home in the U.S. The amount of money that was injected into the economy though refinancing of existing mortgages and the generation of new highly leveraged mortgages is unbelievable.

As a result almost all prospects that you encounter in pre-foreclosure have little to no equity in their homes. Therefore, the only way to create equity is through a short sale. What was once a rarely used technique is not commonplace.

In the current market a real estate investor or a Realtor that is not well versed in the Art of the Short Sale is operating with one hand tied behind their back. In order to do deals with the majority of pre-foreclosure prospects we need to know how to correctly do a short sale. Creating equity is the key to your real estate investing success and short sales are the key to creating equity.

First of all what is a short sale? In case you haven't heard, it is a lender agreeing to take less than the total owed by the borrower as payment in full for the debt. With may properties declining in value it is often the only way an investor can create equity in the deal so that they can make a profit.

One of the drawbacks to Short Sales is that it is necessary for the investor to be able to close the deal. This means that either the investor has to have sufficient cash or credit to purchase the property or find someone who does and flip out the property with a simultaneous closing. No subject to investing with these deals.

The first step in doing a Short Sale is to get what is called an Authorization to Release Information. This is a form that gives the lender or the foreclosure attorney permission to speak to you. You should have gotten a copy of this when you were first speaking with your pre-foreclosure prospect so you could assess how much was owed on the property and what the amount to bring the loan current was. If you did not get one then you will have to get one now, before you can do anything else.

Once you get this document call both the lender and the attorney and fax copies to them. Check back within several days to make sure that the document has been entered into their system. If there are multiple mortgages on the property you must submit an authorization to each lender.

Now, let the games begin. Get ready for the longest and potentially most profitable game of phone tag you have ever played.

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